tv Nightly Business Report PBS January 17, 2012 6:30pm-7:00pm PST
>> susie: disappointing profits from citigroup cast a shadow over the financial sector, but there is a glimmer of hope in the numbers. >> on the positive side, some of these companies are saying they're seeing growth in deposits, growth in loans. >> tom: from citi to wells fargo and other big banks, we talk with a top banking analyst about the best stocks to buy now. it's "nightly business report" for tuesday, january 17. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
captioning sponsored by wpbt >> susie: good evening, everyone. a tale of two banks today-- citigroup's quarterly profits tumbled, but wells fargo posted a record fourth quarter. tom, this is a key week for earnings with lots of reports from financials. >> tom: susie, between today's results and j.p. morgan's disappointing numbers friday, this is a shaky start to earnings season for banks. looking at citi, the banking giant earned 38 cents a share, an 11% drop from a year ago and way below what analysts were expecting. revenues fell to $17 billion. even though citi made more loans, its investment banking business did not do well.
but at wells fargo, profits jumped to 73 cents a share, a penny better than estimates, even though revenues slipped, but were still higher than wall street expectations. >> susie: wells fargo shares rose today, but most other bank stocks were down. still, the major averages managed to end higher. the dow gained 60 points, the nasdaq added 17, and the s&p up 4.5. erika miller reports on how financial firms are likely to perform this earnings season. >> reporter: if there's one sector that's struggling these days, it's financials. >> where some of these companies are seeing weakness, generally speaking, is in anything related to capital markets, so revenues from m&a activity, i.p.o.s and so forth, trading revenues, and then mortgage activity. >> reporter: so why in the world are financials expected to post the biggest earnings increase of any sector with a whopping 70% gain? the answer? a quirk in the data.
turns out, the financial sector's strength is due almost entirely to gains at one firm, a.i.g. >> the company reported a huge loss a year ago. it was $16 per share. they had some charges. as a result, because they are expecting a profit this quarter, plus their overall weighting in the index, it's just having an unusually large effect in this particular quarter. >> reporter: take out a.i.g., and earnings for the group are expected to be flat. but they may be worse than flat. estimates for financials have been falling steadily since the start of the quarter, and many analysts think big banks will continue to struggle. >> the two biggest headwinds are the dodd-frank financial regulatory reform act and what's going on in europe right now. there's less visibility on what's going on in europe, and we have a pending possible default happening in greece in march. >> reporter: still, oja believes now is a good time for patient investors to buy shares of regional banks, as well as one
large bank. >> we like wells fargo. we have a buy recommendation on them because we think they have less of the legacy issues that affect bank of america and citigroup. >> reporter: but others recommend steering clear of the entire sector. >> by and large, you don't know what's in those balance sheets. i would not get tempted with financial yields. in fact, that's a sector that we are avoiding, and i have vetoed at my firm, not to be in my models. >> reporter: the performance of financials, and a.i.g. specifically, will have a big impact on overall s&p 500 earnings with a.i.g., earnings for the index are expected to rise 10%; without a.i.g., profits at the remaining 499 firms are forecast up just 3%. the ability of a single big company to skew the data is not just a fluke this quarter. in the second quarter, the situation is likely to occur again. the difference is it will be a turnaround at bank of america boosting results instead of a.i.g.
erika miller, "nightly business report," new york. >> susie: joining us now with more analysis on bank earnings, fred cannon, co-director of research at kbw. happy new year. nice to have you with us. >> thank you, susie, great to be here. happy new year. >> susie: thank you. so a lot of people have been predicting for this new year 2012, that this will be the turn around year for the bank. others are saying it's going to be a challenging year. how do you see it? >> we're in a challenging year. especially we succumbing into this new year it was a happy new year. we saw a pretty big stock rally in the bank about 10% with some of the big loser last year, bank of america and citi up almost 20% coming up pretty tough. >> susie: we had j.p. morgan on forty, city today. what's that mean. >> trading for exchange and investment banking.
that entire part of bank earning stream is under a lot of pressure. the volatility we saw last year and the problems in europe are just weighing on that part of the business and that's what's keeping citi and a lot of j.p. morgan activity down. on the other hand, domestic basic banking is doing all right. it's not a great environment but it's doing all right and we saw that at wells fargo where we see them continuing to make progress quarter in quarter out. >> what arout. >> susie: what are you expecting from goldman sachs who reports tomorrow and bank of america on thursday and in between that a lot of regionals. >> on goldman sachs they face a lot of the same pressures we saw request problems with citi. the only question is did we reduce expectations. that's true with morgan stanley too. that's going to be tough stocks as we go into the next couple days. bank of america also continues to face issues. while wells posted a great mortgage quarter it's hard to expect that out of bank of
america. >> susie: yet you are still recommending some banks. let's take a look at what your recommendations are for long term shareholders. among the big banks you like j.p. morgan and goldman sachs. and looking at this next graphic coming up here among the regional banks you have a sun trust, u.s. bank corporate and capital one. why these? >> that's right. primarily what we want to recommend to investors is the domestic banks that can make good profits in this environment. particularly u.s. bank and capital one are top of the list on that score. if you're looking for a recovery story sun trust is one it's a solid southeast bank we think will make good progress this year. we generally want to avoid those big global players if investors want to play that and want to be invested there j.p. morgan and goldman sachs is the place to be. >> susie: on the other end you like some of the small banks. these are banks that have assets under $50 million. let's look at the list. not i'm familiar names for our viewers.
cvb financial, columbia, fnb corp. -- what's the scen theme d why do you like the small ones. >> the tom is it used to be the small banks were a big disadvantage to those big players rm. they had to reduce capital and earn money on the investment. those big banks are now required to carry a lot more capital a lot more regulated. because of these smaller banks are under the radar screen they're not too big to stay up. they're able to gain market share and able to take advantage of the situation and we think companies like those you just mentioned don't hear those names, they're not household names but pack west is a good example in southern california able to do a lot of things with their capital that the big players can't. >> susie: we have to leave it there. any disclosures. do you own any of these stocks or your firm do business with them. >> we do business with a number of financials and that's in our disclosure. thank you susie. >> susie: thank you for coming to the program. >> thank you. >> fred cannon
codirector research at kbw. >> reporter: i'm diane eastabrook in detroit. i'll tell you how businesses here are getting behind a city that faces potential bankruptcy. >> susie: if you have a term paper due this week, or you just wanted to know the names of all the hawaiian volcanoes, be warned. wikipedia, the popular online encyclopedia, is going to be closed tomorrow. the site is blacking out its english language version in protest over anti-piracy legislation under consideration in congress. darren gersh explains why this battle has drawn in some of the biggest names on the web. >> reporter: "flatland: the movie" is a drama about geometry set in two dimensions. when director/animator dano johnson tried to find out what people were saying about his educational film, he received an array of emails offering him a free download of his own movie. >> it was a bit alarming. we worked hard on this film and
we wanted to pay everyone who was involved in the creation of it. i really hate online piracy. it definitely affects my income. >> reporter: to make it easier to block foreign web sites that pirate movies and music and software, many content creators are now pushing congress to pass legislation called the "stop online piracy act," or "sopa," and the related "protect i.p." or "pipa" act. network security analyst daniel castro says tougher anti-piracy rules would benefit artists and software engineers working in the united states. >> if you have however million chinese that are simply downloading pirated dvds, pirated movies, they're buying pirated dvds in the street, they're not paying for any of that. those could be funding american jobs, those could be lowering the average cost of these products for americans. >> reporter: but critics of sopa and pipa say the legislation will force companies like google to censor the internet. the search giant is fighting back, along with allies like
delphine halgand at reporters without borders. the human rights group says sopa and pipa send a terrible message to repressive regimes like china and syria. >> it will just encourage repressive regimes to silence their citizens. >> reporter: even dano johnson is concerned the government won't be very good at picking the right sites to block. he worries congress will do more to harm to the internet than good in protecting him from sales lost to online piracy. >> we want to innovate with our business model. i don't think we are going to recoup any of that money through legislation. >> reporter: the motion picture association of america calls tomorrow's black out day protest irresponsible. but wikipedia founder jimmy wales says he and other protesters can't ignore what they see as a threat to free speech. darren gersh, "nightly business report," washington. >> susie: shares of carnival
>> susie: shares of carnival cruise lines moved sharply lower today. the stock tumbled almost $5, or 14%, in its first day of trading since one of carnival's ships ran aground off the coast of italy, killing 11 people. while analysts believe carnival can absorb the immediate financial impact of the crash, they're worried about future bookings. carnival books almost half of its sales for the year between january and march. >> most cruises are booked currently now and in february, in the wave season for that big third quarter season, and the pricing on that could be kind of
severely marked down if this problem stays in the front of the news. >> susie: carnival shares with that 14% loss were the second worst performer on the s&p today, tom. >> coming up in a moment. the shares are town with the carnival here as well susie. let's go ahead and roll with tonight's market focus. this morning's stock gains were cut in half by the closing bell as the crush of corporate earnings reports began. buyers started out strong off of strong regional manufacturing data in the u.s., and a better than expected fourth quarter for the chinese economy. but the gains were trimmed in the last two hours of trading. no surprise on a day with two big banks reporting earnings, the financial sector was the biggest drag. this exchange traded fund follows the s&p financial sector.
it slipped almost 1%, led by citigroup, down 8%. we mentioned the disappointing earnings report at the beginning of our program. the shares are down more than 35% since the one-for-ten reverse stock split last spring. what did work for investors today included the energy, technology and health care sectors, each moving up by seven tenths of a percent. after the closing bell tonight, the co-founder of yahoo severed ties with the company. jerry yang resigned from the yahoo board of directors, as well as the boards of yahoo japan and alibaba, which is partially owned by yahoo. yang co-founded yahoo in 1995. the company has come under increasing pressure to turn itself around. yang said it was time to "pursue other interests." shares of yahoo closed down a fraction ahead of this news. but they rallied more than 3% after the closing bell, up close
to $16 per share. just last week, it named a new c.e.o., scott thompson from paypal. the changes at yahoo come as the company may lose its lead against google in online display advertising. research firm greenlight predicts google will overtake yahoo's display ad business this year. google shares were up a fraction today. research in motion continues seeing some buying over market speculation about a possible sale. shares jumped another 8% today on heavy volume, taking the stock up to its highest price since december. the stock is up 40% from its low last month as market rumors about a potential buyout have circulated. as more and more use smart phones to read magazines, printing company r.r. donnelley's outlook for its year-end revenues and margins were disappointing. shares fell almost 16%. volume was ten times its usual pace, with shares sinking to a new 52-week low. more digital media has hurt its magazine printing business, which is one-fifth of its sales.
a different kind of warning from gold and copper miner newmont. the company expects mining costs to increase this year, and predicts it will mine less copper. shares slid almost 4%. speaking of commodities, nat gas continues dropping, down for the sixth straight session, falling to a new 28-month low. warm winter weather and record high supplies are behind the price plunge. and that's tonight's "market focus." >> susie: the motor city could be headed down the same road general motors and chrysler recently took. detroit is teetering on bankruptcy. right now, a ten-member board appointed by michigan's governor is deciding if the state should appoint an emergency manager to help run the city. but in the face of detroit's financial crisis, something just short of amazing is happening. young people and businesses are moving to the city's downtown. as diane eastabrook reports, it's an effort to revitalize a city that has been in decline for decades. >> reporter: craig steiner now
has time each morning to enjoy breakfast, instead sitting in his car for a half-hour commute to work. last fall, the 30-year-old moved from the suburbs to this loft in downtown detroit minutes from his job. >> i can walk to work now, i can ride a bike. during the winter, i'm driving my car just because it can get kind of cold. >> reporter: steiner used a $20,000 stipend from his employer, blue cross/blue shield of michigan, to buy his $60,000 loft. >> that was crucial. otherwise, i wouldn't have been able to do it. >> reporter: blue cross is among a handful of companies, including quicken loans and strategic staffing solutions, moving jobs into detroit, and offering up to $4 million in housing stipends to employees who relocate there, too. blue cross is moving 3,000 employees from suburban southfield to offices downtown. it's getting $30 million in incentives from the city to do so, but president and c.e.o. daniel loepp says that's not what motivated the move or the stipends.
>> i've got two 20-somethings. they are not overly interested in living out in the country. they want to go where the action is. and i think if we can make that interesting and happening, people are going to be interested in coming, businesses are going to be interested in relocating, and that's going to make for a better economy. >> reporter: dave mansini is already seeing a difference. his supino's pizzeria, located just across the highway from downtown, is always bustling. >> we've been pretty busy, to the point where i have trouble keeping up with business sometimes. >> reporter: "live downtown" is trying to reverse a 50-year trend in detroit. in the 1950s, the motor city was home to more than two million people. but in the 1960s, many residents and businesses began fleeing to the suburbs following the race riots. today, only about 700,000 people live here. population loss has contributed
to detroit's highly public financial woes. with fewer people, businesses have gone under, the city has been forced to shutter schools, and abandoned homes pockmark neighborhood after neighborhood. while downtown detroit has seen some revitalization with a new ballpark, theaters, and other activities, the area is still short of the kind of housing that appeals to young urban dwellers. >> what we like is it's obviously very bright. it gives you some nice views into the city. >> reporter: that's where developer david di rita comes in. his company has acquired the 100-year-old david whitney building and plans to convert it into a 134-room hotel with 108 condominiums and retail space. di rita's still trying to get financing for the project. >> i think people seem to understand that the city is going through a difficult transition, a transition not unlike what our largest employers went through a few years ago, and i believe the market understands that it's going to come the other end of that. >> reporter: irvin reid is
president emeritus of wayne state university and part of the state board appointed to review detroit's finances. he says business investment in the city and the live downtown project will be considered as the group assesses detroit's fiscal health. >> we're going to rebuild the city of detroit-- its finances, its financial foundation-- on the basis of how much activities are going on here, how much business is going on here, how much employment is going on here, what are the prospects of the future. >> reporter: since live downtown started last year, blue cross has helped roughly 100 employees buy or rent in detroit. 200 more applications are in the pipeline. the company admits the project isn't a cure-all for detroit, but it could project commitment to a community that desperately needs it. diane eastabrook, "nightly business report," detroit. >> tom: here's what we're watching for tomorrow: we'll get a check on inflation at the wholesale level with december's producer price index, and a fresh look at manufacturing with last month's industrial production.
also tomorrow, from google to intel and ibm, we look at what to expect from some of the biggest names in technology as they begin to report their quarterly results. >> susie: kraft foods announced plans to cut 1,600 jobs as it prepares to split its businesses. the maker of oreo cookies, kraft mac & cheese, and cadbury chocolates says the cuts will impact mostly corporate and sales positions in the u.s. and canada, not manufacturing jobs. later this year, kraft will split into two companies-- one focused on its grocery business, the other on its global snack brands. >> tom: the afl/cio is turning to a new recruiting tool-- television. the union has launched a new series of ads targeting people it thinks may want to join the organization. the ads began airing today in pittsburgh and austin, texas. other cities will see the ads in coming months. unions currently represent about 12% of workers in the u.s., down from 20% in the early 1980s.
optimistic that the housing recovery is gaining traction. he's deputy chief economist at the parthenon group. >> after three years best described as bouncing along the bottom, the housing market ended last year on an encouraging note-- sales, construction, and homebuilder sentiment all improved markedly. and as we turn the page on 2011, there are reasons to be optimistic about the outlook for 2012. first, the overhang of unsold homes has fallen sharply. the glut of existing homes for sale is down 30% since its 2007 peak, and the supply of new homes is at an all-time low. new foreclosure activity is also falling, down about 25% over the past three years. and with recent declines in unemployment, that downtrend is almost certain to continue. as for the demand side of the housing market, the tailwinds are only getting stronger. it now takes just 15% of the typical family's income to finance a home purchase. that's half of what was required during the boom, and the most affordable things have been in half a century. demographics are also looking up. labor market improvements have
enabled more and more folks who've been co-habitating out of necessity, or living with their parents, to move out on their own. the first nine months of last year, for example, witnessed as much household formation as during the previous three years combined. so with less supply and more demand in store for 2012, conditions are ripe for a housing market improvement as the year unfolds. i'm richard dekaser. >> tom: the nfl is one of the hottest commodities for tv and advertisers. but if your home team doesn't sell enough tickets, you're in the dark. in tonight's "beyond the scoreboard," rick horrow on the business behind re-thinking the black-out rule. >> reporter: the nfl's blackout policy is under fire as federal regulators look into sacking the unpopular rule. the nfl blacked out 16 games on local tv this past season, but the total could have been significantly higher had businesses in charlotte, jacksonville, and miami not stepped up to buy unsold game tickets. football's current blackout policy dates back to 1973. it prevents games from being shown on local tv if tickets
aren't sold out 72 hours prior to kickoff. almost every team has faced a sunday match without it's local tv audience. the fcc's decision to seek public comment on the issue comes as the cost of nfl rights skyrockets. cbs, fox and nbc are spending a combined $27 billion over nine years for nfl games. disney's espn is spending $15 billion for eight year's worth of monday night football. those costs are passed on to consumers, who in some cases, don't get to watch their home team play. some point to these ever escalating deals, which threaten to exclude local consumers, for rising ticket costs. if the blackout rule is changed, it could lead to lower ticket prices in markets having trouble selling out. for a league that makes the bulk of its money from tv rights in the first place, letting all fans watch is the right call. i'm rick horrow. >> tom: that's "nightly business report" for tuesday, january 17. i'm tom hudson. good night, everyone, and good night to you, too, susie.